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The Bulwark of the Facebook Empire

A bearded Facebook staffer is wrestling a black server cabinet bigger than a man into a corporate data center the size of four football fields. Winking blue lights adorn row upon row of servers stretching across the white floor.

Herein lies the source of the Facebook mojo.

As the world's biggest social networking website, Facebook receives 480 million visitors and 250 million image uploads on an average day. Each time anyone logs on to Facebook, hundreds of servers sift through millions of user profiles, and within seconds their Facebook page presents itself. Storage and transmission of one's musings, photos and “likes” are all dependent on a rather ordinary-looking black server cabinet.

The preceding is basically the crux of a video presentation in the main lobby of Facebook headquarters designed to make visitors gasp in amazement at the scale and efficiency of Facebook's networking infrastructure.

What Taiwanese visitors know that most others don't is that every one of those thousands upon thousands of servers came from Quanta Computer Inc. in Linkou, Taoyuan County, Taiwan.

Just two years ago, the majority of Quanta's cloud computing business operations lay in contract manufacturing, producing OEM servers for the likes of Dell Computer and Hewlett-Packard. Only around 30 percent of its servers were sold directly under the Quanta brand to cloud computing enterprises like Facebook.

This year, 85 percent of its servers will be sold directly; Quanta is out of the “OEM” business. Operating revenue deriving from the cloud computing business is expected to reach NT$100 billion, 10 percent of total corporate revenue.

Quanta ultimately opted to spin off a new company, Quanta QCT, to set up an independent sales force to serve Facebook and other new cloud computing clients. The new company is even opening a Seattle branch later this year.

Mainframe Transformation

The global server market grew a paltry one percent last year, with shipments of Dell and HP servers continuing to decline. Quanta's servers however, riding the growth locomotive of clients like Facebook and Rackspace (a corporate cloud computing and management services company), bucked the trend with 19 percent growth.

Quanta manufactures one in seven of the world's servers and sells them directly under its own brand to boot. Industry analysts anticipate that Quanta's server business will this year eclipse that of international titan IBM, with operating revenues growing a tidy 50 percent.

“Quanta has achieved a transformative breakthrough in the value chain,” says Victor Tsan, vice president and general director of the Institute for Information Industry's Market Intelligence and Consulting Institute (MIC). Quanta has jumped on the demand for both new and established technology arising from the top American tech companies, transforming itself into a maker of mainframe servers, Tsan notes.

Eight years ago, when notebook computers were at their hottest, Quanta vice president Mike Yang was pulled from his post overseeing notebooks and transferred to the unfashionable server division. Curiously, the division enjoyed the sobriquet of “Barry Lam's baby.” (Barry Lam is Quanta’s chairman.) After landing a contract to produce IBM BladeCenter servers, it went on to methodically built up technological capabilities ranging from servers and storage to networking equipment. The losses piled up, yet corporate investment dollars kept flowing.

“Barry has really got vision,” Yang says. “What Taiwanese corporate chairman would sink 10 percent of his company's resources and capital into a division when it accounts for less than one percent of corporate operating revenue?”

Eight years later, Quanta is a step ahead of competitors in reaping the cloud computing windfall. Quanta's multifaceted technological capabilities make it indispensable to Facebook.

Quanta's 10-year action plan sought to bring together the three core technologies of servers, storage equipment and networking equipment so that Facebook could come straight to them for one-stop shopping, rather than dealing separately with Dell, EMC and Cisco.

Back when Facebook had a mere 300 million users and was sourcing its servers through Dell, the company opted to bypass Dell and directly approach Quanta for its custom servers. Former Facebook vice president for technical operations Jonathan Heiliger, who almost singlehandedly oversaw construction of Facebook's data center and initiated the company's “Open Compute Project,” has personally visited Quanta HQ on a number of occasions.

Sweating a 20mm Detail

As pains are taken when building data centers to ensure rapid heat dispersion while using a minimum of power, Quanta engineers took these factors to heart in everything from selection of board materials and the design of motherboard circuitry to the effectiveness of power savings for machines in sleep mode.

“I want our engineers to walk in a client's shoes, and think things through on behalf of the client. Only then can they define the specifications of a product,” Yang says.

Sometimes, sweating the details is a matter of an extra 20mm. Quanta designers came up with a 6.73cm-tall server case, allowing the blades of cooling fans to be expanded from 40mm to 60mm, thereby improving cooling efficiency.

Attention to detail extends to even the design of the power cord sockets. Inside Facebook's data center, the power supply and power cables on each and every server cabinet face out into the corridor. Technicians thus have no need to stick their hands into a hot 38-degree Celsius cabinet to pull or insert plugs.

“When a server is installed in a data center, we go in and fine-tune the design, and that is our forte,” says Yang, undaunted by the prospect that competitors like Wistron or Compal might endeavor to keep pace. You need a completely different operational paradigm to jump into cloud computing.

Competitive Edge of 'Design Fine Tuning'

In the past, whenever they received a contract manufacturing order, they only needed to establish the production process and tally the bill of materials and development costs, then the rest was easily achieved.

“You could almost do it with your eyes closed,” Yang says nonchalantly.

The operational paradigm behind mass producing just a few models of notebook computers was expanding sales volume in response to increasingly thin profit margins. Original design manufacturing (ODM) is like guerrilla warfare, any given production line could be given over to suit another client's needs at any time, Yang says.

But now, in creating servers for clients, Quanta must pursue both volume and profit margins. Branded direct sales require doing battle as a disciplined army, one whose research, manufacturing and marketing branches are all in top nick. Client relationships need to last five years, or a decade.

There are plenty of doubters in the potential of the server business, who feel its sales volume can never match that of notebooks. The perception is that businesses use servers long-term and that sales growth will fail to keep pace with the decline in notebook market share.

“That's a myth,” Yang says. “Technology is constantly advancing; cloud companies engage in a wave of server upgrades every three to five years, buying 100,000 units at a crack.”

Technological integration and a ten-year plan took Quanta to the heights of cloud computing even as the company's presence in the PC sector was sinking, touching off a transformation, and making Taiwan indispensable to Facebook.